The U.S. Department of the Treasury has released a proposal for anti-money laundering rules for stablecoins, requiring issuers to have the ability to freeze and destroy tokens.

On April 8, 2026, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) jointly issued a Notice of Proposed Rulemaking (NPRM), which for the first time defines licensed payment stablecoin issuers (PPSIs) as financial institutions under the Bank Secrecy Act. This marks the most specific enforcement step in the U.S. stablecoin sector since the passage of the GENIUS Act in July 2025.

According to the proposal summary, issuers must establish comprehensive anti-money laundering and counter-terrorism financing (AML/CFT) systems, with core requirements including: implementing risk-based compliance programs, allocating more resources to high-risk customers and transactions; establishing transaction control mechanisms with technical capabilities to block, freeze, and reject suspicious transactions; complying with OFAC sanctions obligations by conducting real-time screening of transactions. The proposal specifically states that stablecoin token contracts must have programmable functions allowing transactions to be intercepted, frozen, or destroyed in response to law enforcement directives. FinCEN also requires that the AML procedures of issuers be capable of suspending flagged transactions and focusing on high-risk customers and activities.

Why Require Stablecoin Issuers to Have Freezing and Burning Capabilities

The mandatory requirement for freezing and burning capabilities essentially transplant the account control logic from traditional financial systems into the blockchain environment. The logic of the proposal is: if stablecoins are widely used for payments and value storage, then their issuers should bear anti-money laundering and sanctions compliance obligations equivalent to those of traditional financial institutions. The programmability of stablecoins provides a technical window—through built-in blacklists in smart contracts, issuers can block fund flows at the address level.

In fact, leading stablecoin issuers have already deployed similar mechanisms in practice. Tether, the issuer of USDT, has maintained a blacklist address database for a long time, with frozen amounts totaling hundreds of millions of dollars; Circle, the issuer of USDC, has directly embedded blacklist functionality into its smart contracts, allowing instant freezing of any wallet address without third-party approval. Formalizing this “industry practice” into federal regulation means that all stablecoin issuers operating in the U.S. must preconfigure such control functions in their token contracts, no longer able to evade regulatory responsibilities under the guise of technical neutrality.

What Bank-Level AML Standards Mean for Issuers

The proposal defines issuers as financial institutions under the Bank Secrecy Act, which means stablecoin issuers are legally leveled with banks. They need to establish complete AML/CFT programs, including customer due diligence (CDD), suspicious activity reports (SAR), transaction monitoring, and sanctions screening systems. More importantly, their compliance obligations are no longer limited to direct customer relationships but extend to secondary market transactions—meaning issuers must monitor token flows across decentralized exchanges and on-chain wallets.

This requirement is highly complex in practice. Traditional financial institutions control customer identities through account systems; transaction monitoring revolves around accounts. However, stablecoin issuers do not directly control end-user wallets on-chain, making the concept of “customers” ambiguous. The proposal attempts to address this contradiction through a risk-based approach: issuers do not need to verify the identity of each on-chain transaction but must establish monitoring systems to identify high-risk addresses and suspicious transaction patterns, and take freezing actions when necessary. This implies that on-chain data analysis capabilities will become core compliance assets for stablecoin issuers.

How Secondary Market Transaction Monitoring Affects the On-Chain Ecosystem

Monitoring secondary market transactions is the most technically challenging part of the proposal. Once stablecoins leave the issuer-controlled contract addresses, they enter the open blockchain network, circulating across decentralized exchanges, cross-chain bridges, and DeFi protocols. Without direct control, issuers need to track the movement of tokens—this essentially requires on-chain tracking and address risk assessment capabilities.

Current mainstream solutions rely on on-chain analysis tools that analyze address transaction histories to identify links to sanctioned addresses, dark web markets, mixers, or hacking activities. Implementing this proposal will accelerate the maturity of this tech stack: issuers will need to deploy real-time monitoring systems to assess the risk of token-holding addresses and counterparties, triggering freeze commands when suspicious activity is detected. For DeFi protocols, this means they need to adapt to the issuer’s blacklist mechanisms; otherwise, they risk funds becoming stuck.

How the Proposal Reshapes the Narrative of Stablecoin Decentralization

Since their inception, stablecoins have been caught in a tension between centralization and decentralization. USDT and USDC, although operating on public blockchains, are issued by entities with the highest authority over the token contracts, including minting, burning, and freezing addresses. The proposal’s mandatory requirements effectively legalize this centralized power systemically—freezing capabilities are no longer optional business features but legal compliance obligations.

This constitutes a fundamental challenge to the decentralization narrative of stablecoins. Supporters argue that AML compliance is a necessary cost for stablecoins to enter mainstream finance, and bank-level regulation is the cornerstone of their legitimacy. Critics, however, point out that freezeable and burnable stablecoins are essentially controlled digital dollars, with underlying logic conflicting with the core value of cryptocurrencies—“immutable, permissionless.” When issuers are granted unilateral control over user assets, users no longer hold autonomous custody of their crypto assets but hold on-chain tokens with regulatory anchors. This narrative shift will profoundly impact user trust in stablecoins and may drive the exploration of privacy-preserving stablecoins or algorithmic stablecoins as alternatives.

How Compliance Competition Will Shape the Stablecoin Market Landscape

The proposal accelerates the structural differentiation of the stablecoin market. As of April 10, 2026, the total global stablecoin market cap is approximately $315 billion, with USDT and USDC accounting for over 83% of the market share, roughly $184 billion and $77 billion respectively. In terms of trading activity, USDC’s adjusted trading volume reached $2.2 trillion, far surpassing USDT’s $1.3 trillion, accounting for about 64%. USDC has obtained the MiCA license in the European Union, giving it a regulatory advantage in the second-largest regulated financial market, with an annual growth rate of 73%.

Embedding compliance capabilities directly into regulations gives USDC a systemic advantage in its technical architecture and compliance system under the regulatory framework. Tether, although leading in market cap, faces greater compliance pressure—its blacklist mechanism has been operational for years but needs further upgrades to meet FinCEN’s secondary market monitoring requirements. After the 60-day public comment period ends, the final rules are expected to fully take effect in 2027, and the compliance cost gap will accelerate market concentration among issuers with mature compliance systems. Smaller stablecoin projects may find the costs of establishing bank-level AML systems a significant barrier to entry.

Summary

This U.S. Treasury proposal is just one node in the global wave of stablecoin regulation. From the timeline perspective, the signing of the GENIUS Act in July 2025 established an initial federal regulatory framework for stablecoins; the proposal from FinCEN and OFAC in April 2026 is its first concrete enforcement step. Meanwhile, the EU’s MiCA regulation has entered full implementation, requiring stablecoin issuers to hold 1:1 reserves and enable token freezing. In Asia, Hong Kong passed a stablecoin law in August 2025, requiring issuers to obtain approval from the Hong Kong Monetary Authority and imposing strict KYC and AML requirements.

The convergence of regulatory frameworks across jurisdictions is driving the global standardization of stablecoin issuer compliance. Future regulatory directions to watch include: cross-jurisdictional enforcement coordination, especially in cross-border freezing directives; how DeFi protocols adapt to compliance requirements without sacrificing decentralization; and the technological contest between privacy-preserving tech and AML monitoring. For the crypto industry, the deepening regulation of stablecoins will redefine the compliance boundaries of the entire ecosystem—stablecoins will no longer be “crypto dollars” outside regulation but integral components of the global financial compliance infrastructure.

Core Provisions of the Treasury AML Proposal at a Glance

Frequently Asked Questions (FAQ)

Q1: Can users appeal for unfreezing after stablecoins are frozen?

Freezing is typically triggered by issuers based on law enforcement directives or internal risk assessments. Users can submit appeal materials to issuers or law enforcement agencies. However, the proposal itself does not specify detailed appeal procedures; mechanisms depend on each issuer’s internal processes.

Q2: Does this proposal apply to all stablecoins?

The proposal targets “licensed payment stablecoin issuers,” i.e., entities registered and authorized to issue payment stablecoins in the U.S. Decentralized stablecoins or algorithmic stablecoins that do not involve centralized issuers are not directly covered.

Q3: Do USDT and USDC already have the capabilities required by the proposal?

Both issuers have embedded blacklist mechanisms in their smart contracts, capable of address freezing. The core change is elevating these capabilities from “business choices” to “legal obligations,” along with adding systematic secondary market monitoring requirements.

Q4: Are user assets at risk when stablecoins are frozen?

From an asset security perspective, freezing mainly targets addresses involved in illegal activities; ordinary users are not affected. However, from an ownership perspective, users no longer hold “uncensorable” crypto assets—issuers have unilateral control rights.

Q5: How does the proposal impact DeFi protocols?

DeFi protocols interacting with stablecoins need to adapt to the issuer’s blacklist mechanisms. If protocols do not implement handling for blacklisted addresses, funds could become stuck. Developers should monitor the proposal’s progress and prepare technical adaptations.